Generation Mining offers a cheap palladium investment opportunity in Canada (TSX:GENM:CA)


Investment thesis

Generation Mining (OTCQB: GENMF) (TSX:GENM:CA) owns 100% of the Marathon Pd/Cu project in Ontario, Canada. I believe the company offers an attractive investment in a potential palladium mine in a Tier 1 jurisdiction with excellent management. Feasibility 2021 Wheaton Precious Metals “cheap” streaming study and deal (BPM)(MPM: CA) resulted in a robust economy with a short return on investment of 1.7 and C$M 1.07 NPV (6%). In my opinion Gen looks undervalued as it is currently trading at just 0.09x VAN. Let’s review.

Marathon Project

The Marathon project is a Pd/Cu/Pt project located in northwestern Ontario, Canada. The Marathon mine is one of the few large-scale palladium development projects outside of Russia and South Africa. The project was purchased from Sibanye Stillwater as they sold all of their development projects after acquiring Stillwater. They thought the project was uneconomical at that time when palladium cost around $1350 an ounce. However, the 2021 feasibility study shows a growing mining plan and economy.

The 2021 FS study projected a mine life of 13 years, mining 2.03 million ounces of Pd, 500 million pounds of Cu and 634 Koz of Pt. The project’s mine plan is unique because it features a high-grade palladium core and a high-grade copper core. The envisioned mining plan will initially focus on mining 70% of the palladium in the first five years. After this mine, the focus is on the high quality copper core. The thesis of this mining plan is to reduce the risk of declining demand for palladium in the future (I describe this concern in another paragraph). The revenue split is 58% palladium, 26% copper, 9.6% platinum, and some gold and silver. The 2021 feasibility study showed excellent economics using a benchmark price of US$1,725 ​​Pd and a price of US$3.20 Cu. The NPV (6%) is estimated at C$1,068 million and has an IRR of 30%. I consider the payback period to be short at “only” 2.3 years. It is important to remember that the NPV can change a lot due to palladium leverage in the first five years and copper price leverage thereafter.

pay metals

Corporate presentation

The location of the Marathon project offers excellent infrastructure, which reduces a large part of the initial CAPEX, which is estimated at 665 million Canadian dollars. Feasibility costs are calculated in the envisaged CAPEX. Unfortunately, I think the actual CAPEX is higher due to inflation. Another benefit of the excellent nearby infrastructure is that it could provide carbon-free energy resulting in unique ‘green’ palladium and copper. Gen even supports that the Marathon mine could be one of the lowest carbon intensity mines in the world per ton of copper equivalent.

Streaming deal with Wheaton Precious Metals

The current market is very competitive for the royalty and streaming industry. Gen took advantage of this situation with the Wheaton deal announced in March 2022. Wheaton Precious Metals will pay Gen a total cash consideration of C$240 million in exchange for a stream on all gold production and 22% of platinum production from the Marathon project. The net cost of stream is 4.8% of mine revenue at FS base metal prices. The “cheap capital” of the Wheaton deal led to an improvement in the economy. The return on investment at 1.7 years and the IRR increased from 30% to 38%.

Gen has already secured C$40 million to fund detailed engineering and secure working capital for next year. Management did not want to issue shares and dilute shareholders. The fact that Gen secured initial capital through a streaming deal is quite unique and proves both Wheaton’s confidence and the excellent execution of Gen’s management team.

I think getting streaming deals is a good sign for investors. Royalty and streaming companies like Wheaton do extensive research before offering capital. These teams of experts often have more knowledge of the geology and mining projects than most investors. The fact that Gen got such great contract terms shows that Wheaton’s team liked what they saw.


Management is high quality for a development company with a market capitalization of just C$97 million. The team has constructed and operated numerous mines. The management has already impressed me with the rapid progress of the Marathon project as they conducted a PEA and FS study in three years with an excellent streaming agreement. Also, are they advancing the environmental assessment process at a rapid pace? Insider ownership is 7%, so management and the board align with shareholders to create shareholder value.

Management Generation Mining

Corporate presentation

Palladium demand

An important part of Gen’s investment thesis is the future demand for palladium. 87% of the supply is used in automotive catalysts to reduce emissions. Governments require by law that car manufacturers use palladium and some governments are even increasing the load of palladium per vehicle to reduce emissions in polluted major cities. This reliance on catalytic demand has some investors worried about investing in Gen, as they believe demand for palladium will fall as all cars go electric. I certainly think the demand for electric driving will increase, but it won’t drastically drop the demand for palladium. Certainly not before 2029 when 70% of the palladium has already been mined. If the demand for palladium decreased because people are going to conduct electricity, then the demand for copper would increase a lot to conduct the required electricity. In this case, the increase in copper revenues would mainly offset the decline in palladium revenues.


The main risk for Gen is to allow the risk. The company does not have environmental assessment and building permit approval. Stillwater has done extensive work on the permits, so Gen just needs to update it. This shortened the authorization process by about two years. The Ontario movement was supportive of the permitting efforts, they even allowed Gen to apply for the permits before the environmental process was approved. The results of the environmental assessment are expected to be released in November/December 2022. Management expects to receive construction permits in early 2023. The Marathon project is surrounded by other mines, so local communities have extensive mining experience. However, there is still a considerable risk that Gen will not receive the environmental permits by the end of 2022. A potential delay in the permitting process would also lead to further stock dilution as they have to use more cash before to be able to start production.

Gen does not generate cash, so they have to go to the market to raise funds. As a result, shareholders run the risk of equity dilution. The cash reserve at the end of the second quarter was nearly C$19 million. The average spend since 2021 was C$8.5 million and C$8.2 million in the second quarter of 2022. Therefore, Gen must raise funds before the second quarter of 2023.

Another risk is the CAPEX funding risk. Gen did not guarantee the debt required to build the Marathon mine. The total debt is estimated at between 400 and 500 million Canadian dollars. Financiers often need to raise equity to protect their loans, so shareholders can expect some stock dilution. I think there is considerable risk that CAPEX will be higher than expected due to inflation. In this case, Gen may need to raise more capital either through more debt or through more equity. Ongoing detailed engineering should answer this question by the end of 2022.

Marathon Project Development Timeline

Corporate presentation


Gen’s stock can be called cheap based on a price to net asset value valuation. The P/NAV is only 0.09x, which is based on a market cap of C$97 million and a NPV of C$1.07 billion (6%). The graphs below show how the NPV is affected by the different prices of Pd and Cu. The current price of one ounce of Pd and one pound of Cu is $2,075 and $3.35, respectively. Thus, the actual NPV is even higher than the projected NPV of C$1.07 billion. The stream the valuation is very low for a company holding a late-stage palladium development project in a Tier 1 jurisdiction with such an excellent management team.

Sensitivity analysis

Corporate presentation

Many investors in the mining sector are familiar with the Lassonde curve. Gen is negotiating debt financing to develop the mine and expects to receive all permits by the end of 2022. This is expected to result in the start of production in 2024. The transition from a high consumption development company to cash to a cash-generating company should result in a significant revaluation.

Lassande curve

Corporate presentation


The excellent management team has made tremendous achievements in the short time they own the Marathon project. The 2021 feasibility study shows a very robust economy with a short ROI and an IRR of 38%. However, the valuation is only 0.09x on a P/NAV valuation. The main risk for Gen shareholders is not to receive the environmental permits. I think the current cheap valuation is a great first entry price for long-term investors. I would buy a small position at the current stock price. Gen could receive environmental approval and finalize the construction decision at the end of the year. This would resolve the risk of obtaining permits and clarify the possible increase in mine construction costs due to inflation. Therefore, I would assess adding additional stocks to my position after 2022.

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